Wider ban on conflicted payments

Several dealer groups plan to launch private-label investment platforms so they can take a margin on products sold to clients.
Photo: Quentin Jones

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Volume rebatesZoë Fielding

Financial planners will be banned from accepting volume or sales target-related payments from product providers and investment platforms under rules aimed at reducing conflicts of interest in financial advice.

The financial advice industry has been moving away from ­commission-based remuneration models in favour of charging fees for advice, but the ban on volume rebates goes further, targeting payments made to the dealer groups that license advisers.

Some financial planners have argued that, since volume rebates are a step removed from the financial planners, they have less scope to influence advisers’ ­recommendations.

However, announcing further details of the Future of Financial Advice (FoFA) reforms, Assistant Treasurer and Financial Services Minister
Bill Shorten
said any payments that flowed from product manufacturers to financial planners were a concern and that the ban was intended to remove any payments that had the potential to create similar conflicts of interest to commissions.

“The key issue for us is payments which go from product ­providers to financial advisers," he said. “What we want to do is make sure that there’s no ambiguity when a customer knows that the planner is being remunerated by the ­consumer and that they’re not receiving money from a product provider, so all volume payments to dealerships and advisers are banned."

Some financial advisory businesses have pre-empted the ban by investigating different ways to profit from their advisers’ product recommendations.

Several dealer groups plan to launch private-label investment platforms or begin offering their own brand of managed accounts so that the businesses can take a margin on the products, rather than collect volume rebate payments from external providers.

Volume rebates have propped up the revenues of dealer groups, many of which are not profitable in their own right.

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The Association of Independently Owned Financial Planners, a conglomerate of smaller financial planning groups, launched a private-label platform in March called Personal Choice Private. The platform is owned by the shareholders: financial planning dealer groups that are members of the association.

It is based on Westpac’s Asgard platform but has an ­external trustee, which gives the advisers more control. The design is yet to be tested under the new regime, but the association’s executive director, Peter Johnston, said the advisers believed the arrangement made them product manufacturers and therefore able to collect a profit margin on clients’ money that flowed into the products.

Listed advice businesses Snowball Group and DKN have also been working on private-label investment platforms.

The information pack ­accompanying Mr Shorten’s announcements noted that some industry stakeholders had raised concerns about arrangements such as equity share schemes or special purpose vehicles being used to circumvent the ban on volume-based payments.

Mr Shorten said the government would consult consumer and industry groups on anti-avoidance provisions.

The penalty regime has not yet been finalised, but he said there would be penalties for financial planners who did not comply with the rules.

There will be further consultation on how the regulations will be implemented before the legislation is introduced.

Under the FoFA reforms, all upfront and trailing commissions on life insurance products sold through superannuation funds will also be banned from July 1, 2013.

Non-monetary benefits worth more than $300, known in the industry as soft-dollar benefits, will also be banned, with the exception of payments for professional development and IT services. This will come into effect from July 1 next year.